UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date
of
Report (Date of Earliest Event Reported): May
31, 2007 (May 30, 2007)
DGSE
COMPANIES, INC.
(Exact
Name of Registrant as Specified in Charter)
|
Nevada
|
1-11048
|
88-0097334
|
|
(State
or Other Jurisdiction
of
Incorporation)
|
(Commission
File Number)
|
(IRS
Employer
Identification
No.)
|
|
2817
Forest Lane, Dallas, Texas
|
75234
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Registrant’s
Telephone Number, Including Area Code: (972)
484-3662
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule
14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant
to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant
to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item
1.01. Entry
into a Material Definitive Agreement.
On
May
30, 2007, we completed our acquisition of Superior Galleries, Inc., which
we
refer to as Superior. For more information about this acquisition, see the
disclosure set forth under Item 2.01 below.
Entry
into Registration
Rights Agreement.
Upon
the
consummation of the acquisition of Superior, we entered into a registration
rights agreement with Stanford International Bank Ltd., our second largest
stockholder and a principal lender to our combined company, which we refer
to as
Stanford. The registration rights agreement obligates us to register for
resale
under the Securities Act the shares of our common stock which may be issued
upon
the exercise of the “A” warrants or the “B” warrants (a description of which is
set forth under Item 2.01 below), as liquidated damages upon a default under
the
registration rights agreement or as a distribution on any of the foregoing
shares, which we refer to collectively as the registrable shares. We must,
at
our expense, file the registration statement by June 4, 2007 and use our
commercially reasonable efforts to have the registration statement declared
effective by August 28, 2007. We must maintain the effectiveness of the
registration statement at our expense for a period of up to three years.
Thereafter, if Stanford or any of its designees owns any registrable securities
and we are eligible to register the registrable securities on a Form S-3,
we
have agreed to maintain the registration statement effective under the
Securities Act to register the resale of the registrable securities, but
at the
expense of Stanford and its assignees.
If
we do
not comply with our registration obligations, we have agreed to issue to
each
holder of an “A” warrant, as of the first day of our failure to comply and for
every consecutive 3-month period in which we are not in compliance, as
liquidated damages, additional “A” warrants to purchase five percent of the
aggregate number of shares of our common stock issuable upon the exercise
in
full of the “A” warrants then held by each warrant holder. The “A” warrants have
an exercise price of $1.89 per share.
The
holders of registrable securities also have limited “piggyback” registration
rights. These rights are triggered with respect to registrable shares if
we
register shares of our common stock under the Securities Act at a time when
registrable shares are not covered by an effective registration statement.
These
rights are triggered with respect to both the registrable shares and shares
of
our common stock acquired by Stanford or its designees in the Superior
acquisition if we register for resale specified shares of our common stock
held
by Dr. Smith, other than shares acquired upon the exercise of his stock options,
at a time when registrable shares or any of those merger shares are not covered
by an effective registration statement.
The
registration rights agreement also provides the warrant holders with customary
indemnification rights.
A
copy of
the registration rights agreement is attached hereto as Exhibit 99.1,
and is
incorporated herein by reference. The foregoing description of the registration
rights agreement is qualified in its entirety by reference to the full text
of
the agreement.
Entry
into Amended and Restated Loan and Security
Agreement.
In
connection with our acquisition of Superior, Superior amended and restated
its
loan and security agreement with Stanford. For more information about the
revised Stanford credit facility, see the disclosure set forth under Item
2.03
below.
Entry
into Corporate
Governance Agreement.
In
connection with the acquisition of Superior, we entered into a corporate
governance agreement with our two largest post-acquisition stockholders,
Dr.
Smith, our chairman and chief executive officer, and Stanford, the principal
lender to our combined company. Pursuant to this agreement, subject to the
applicable fiduciary duties of our board of directors, and our good faith
compliance with applicable law and regulations, we have agreed to recommend
the
following directors to constitute our board of directors: Dr. Smith; William
H.
Oyster, our president and chief operating officer; David Rector, a newly
elected
director of our board; two current independent directors (as the term
“independent director” is defined for purposes of the Nasdaq Capital Market
listing standards) of our board who are expected to be William P. Cordeiro
and
Craig Alan-Lee; and two independent directors (as the term “independent
director” is defined for purposes of the Nasdaq Capital Market listing
standards) to be nominated by Stanford, who are expected to be Mitchell T.
Stoltz and Richard Matthew Gozia. Both Messrs. Rector and Stoltz served as
directors of Superior prior to the acquisition.
A
copy of
the corporate governance agreement is attached hereto as Exhibit 99.2,
and is
incorporated herein by reference. The foregoing description of the corporate
governance agreement is qualified in its entirety by reference to the full
text
of the agreement.
Entry
into Escrow Agreement.
In
connection with the closing of the acquisition of Superior, we entered into
an
escrow agreement with American Stock Transfer & Trust Company, as escrow
agent, and Stanford, as stockholder agent. The escrow agent will be responsible
for establishing, maintaining and administrating the escrow account. For
a
description of the escrow account, see the disclosure set forth under Item
2.01
below.
We
will
pay the escrow agent customary fees for its services and will reimburse the
escrow agent’s out-of-pocket expenses. In performing any duties under the escrow
agreement, the escrow agent will not be liable to any party for damages,
losses
or expenses, except for gross negligence or willful misconduct on its part.
The
escrow agent will not incur any liability for any action taken or omitted
in
reliance upon an instrument, including any written statement or affidavit,
that
the escrow agent in good faith believes to be genuine. We and, to the extent
of
the assets on deposit in the escrow account, the pre-acquisition Superior
stockholders are obligated jointly and severally to indemnify and hold the
escrow agent harmless against any and all losses, including reasonable costs
of
investigation, attorneys fees and disbursements, that may be imposed on or
incurred by the escrow agent in connection with the performance of its duties
under the escrow agreement.
The
escrow agent may resign at any time by written notice to us and the stockholder
agent, and we may remove the escrow agent at any time. We will be responsible
for appointing a successor escrow agent.
A
copy of
the escrow agreement is attached hereto as Exhibit 99.3,
and is
incorporated herein by reference. The foregoing description of the escrow
agreement is qualified in its entirety by reference to the full text of the
agreement.
Entry
into Employment Agreements.
Upon
the
consummation of the acquisition of Superior, we entered into amended and
restated employment agreements with Dr. L.S. Smith, a director of our board
and
our chairman and chief executive officer, and William H. Oyster, a director
of
our board and our president and chief operating officer, and into a new
employment agreement with John Benson, our chief financial officer. For more
information about these employment agreements, please see the disclosure
set
forth under Item 5.02 below.
Item
2.01. Completion
of Acquisition of Assets.
Acquisition
of Superior.
On
May
30, 2007, we completed our acquisition of Superior Galleries, Inc., which
we
refer to as Superior, pursuant to an amended and restated agreement and plan
of
merger and reorganization dated as of January 6, 2007, which we refer to
as the
merger agreement, with Superior and Stanford International Bank Ltd., then
Superior’s largest stockholder and its principal lender, which we refer to as
Stanford, as stockholder agent for the Superior stockholders. The merger
agreement was initially entered into on July 12, 2006 and amended and restated
on January 6, 2007. Pursuant to the merger agreement, Superior merged with
and
into a newly-created, wholly-owned subsidiary of our company, and became
our
wholly-owned subsidiary. Pursuant to the merger agreement, in connection
with
the merger, we issued approximately 3.6 million shares of our common stock
to
Superior stockholders.
Our
outstanding shares of common stock remained unchanged in the
merger.
Escrow.
Approximately
15% of the shares issuable to Superior stockholders at the closing of the
acquisition have been placed in an escrow account to satisfy indemnification
obligations of Superior stockholders under the merger agreement and to pay
specified fees and expenses of the stockholder agent. The escrow account
is
scheduled to be closed and any remaining assets distributed to Superior
stockholders on May 30, 2008, subject to extension if any claim is then pending.
The escrow account is governed by the terms of an escrow agreement, a
description of which is set forth under Item 1.01 above.
Issuance
of Warrants.
Immediately
preceding the closing of our acquisition of Superior, Stanford exchanged
approximately $8.4 million of outstanding Superior debt for approximately
5
million shares of Superior common stock, at an exchange rate of $1.70 per
share.
In
consideration of the debt exchange described above, and of Stanford entering
into an $11.5 million credit facility with Superior, a description of which
is
set forth under Item 2.03 below, and making a substantial portion of that
credit
facility available to us and our other subsidiaries, we issued warrants to
Stanford and its designees at the closing of the acquisition. These warrants
are
exercisable for an aggregate of 845,634 shares of our common stock at an
exercise price of $1.89 per share, which we refer to as the “A” warrants, and an
aggregate of 863,000 shares of our common stock at an exercise price of $0.001
per share, which we refer to as the “B” warrants. All of the warrants will be
exercisable for seven years, until May 29, 2014.
Both
the
“A” warrants and “B” warrants contain customary anti-dilution provisions which
would adjust the exercise price and number of shares subject to the warrant
in
the event of specified actions.
The
warrants have a net exercise provision, which enables the holder to choose
to
exercise the warrant without paying cash by receiving a number of shares
having
a market value equal to the excess of the aggregate market value of the shares
for which the warrant is being exercised over the aggregate exercise price
due
under the warrant. This right is available only if the shares are being publicly
traded. In addition, the warrants feature an “easy sale” exercise provision,
which enables the holder to pay the exercise price from the proceeds of the
“same day” sale of the shares of common stock issued upon the exercise of the
warrant. This right is available only if permitted by applicable law and
applicable trading market regulations.
A
copy of
the form of “A” and “B” warrants is attached hereto as Exhibit 99.4,
and is
incorporated herein by reference. The foregoing description of the warrants
is
qualified in its entirety by reference to the full text of the
warrant.
Assumption
of Options.
At
the
effective time of our acquisition of Superior, each outstanding option to
purchase shares of Superior common stock was converted into an option to
purchase shares of our common stock. Each assumed Superior option is exercisable
for a number of shares of our common stock equal to the number of Superior
shares covered by the Superior option, multiplied by the exchange ratio of
0.2731, rounded to the nearest whole number of shares, and has an exercise
price
equal to the exercise price of the Superior option divided by the exchange
ratio, but not less than the par value of our common stock. Except for these
adjustments to identity of the issuer of the option, the type and number
of
shares subject to the option and the exercise price of the option, the other
terms of the assumed options remained substantially the same. We assumed
options
to acquire approximately 95,380 shares of our common stock in the
acquisition.
Stockholder
Agent.
Stanford
is serving as the stockholder agent for the pre-acquisition Superior
stockholders. Under the merger agreement and related escrow agreement, the
stockholder agent serves as the exclusive agent, attorney-in-fact and
representative of all pre-acquisition Superior stockholders under the merger
agreement and escrow agreement.
The
stockholder agent may resign at any time by written notice to us and the
escrow
agent. Stanford will be responsible for appointing a successor stockholder
agent, as it held a majority of the shares of Superior outstanding immediately
preceding the acquisition. The successor stockholder agent must be a
pre-acquisition affiliate of Superior, a current or prior director or officer
of
Superior, or reasonably acceptable to us. If Stanford fail to appoint a
successor stockholder agent within 10 days of the resignation of the stockholder
agent, we may, but will not be obligated to, petition a proper court to appoint
a successor.
For
more
information about the acquisition, including the warrants, the assumption
of
options, the escrow arrangements, and the stockholder agent, see our joint
proxy
statement/prospectus dated April 26, 2007, which forms part of our registration
statement (No. 333-140890) on Form S-4 and was filed with the SEC on April
26,
2007.
Item
2.03. Creation
of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
Upon
the
consummation of our acquisition of Superior, and after the exchange by Stanford
of $8.4 million of Superior debt for shares of Superior common stock, a
description of which is set forth under Item 2.01 above, Superior amended
and
restated its credit facility with Stanford. The amended and restated commercial
loan and security agreement, which we refer to as the loan agreement, decreased
the available credit line from $19.89 million to $11.5 million, reflecting
the
$8.4 million debt exchange. Interest on the outstanding principal balance
will
continue to accrue at the prime rate, as reported in the Wall Street Journal,
or, during an event of default, at a rate 5% greater than the prime rate
as so
reported.
The
new
credit facility is split into two revolving loans of $5 million and $6.5
million. Loan proceeds can only be used for customer loans consistent with
specified loan policies and procedures and for permitted inter-company
transactions. Permitted inter-company transactions are loans or dividends
paid
to us or our other subsidiaries. We guaranteed the repayment of these permitted
inter-company transactions pursuant to a secured guaranty in favor of Stanford.
In connection with the secured guarantee, Stanford and Texas Capital Bank,
N.A.,
our primary lender, entered into an intercreditor agreement with us, and
we
entered into a subordination agreement with Superior, both of which subordinate
Stanford’s security interests and repayment rights to those of Texas Capital
Bank.
The
new
credit facility matures on May 1, 2011, provided that in case any of several
customary events of default occurs, Stanford may declare the entire principal
amount of both loans due immediately and take possession and dispose of the
collateral described below. An event of default includes, among others, the
following events: failure to make a payment when due under the loan agreement;
breach of a covenant in the loan agreement or any related agreement; a
representation or warranty made in the loan agreement or related agreements
is
materially incorrect; a default in repayment of borrowed money to any person;
a
material breach or default under any material contract; certain bankruptcy
or
insolvency events; and a default under a third-party loan.
Superior
is obligated to repay the first revolving loan from the proceeds of the
inventory or other collateral purchased with the proceeds of the
loan.
The
loans
will be secured by a first priority security interest in substantially all
of
Superior’s assets, including inventory, accounts receivable, promissory notes,
books and records and insurance policies, and the proceeds of the foregoing.
In
addition, pursuant to the secured guaranty and intercreditor arrangements
described above, Stanford will have a second-order security interest in all
of
our accounts and inventory.
The
loan
agreement includes a number of customary covenants applicable to Superior,
including, among others: punctual payments of principal and interest under
the
credit facility; prompt payment of taxes, leases and other indebtedness;
maintenance of corporate existence, qualifications, licenses, intellectual
property rights, property and assets; maintenance of satisfactory insurance;
preparation and delivery of financial statements for us and separately for
Superior in accordance with generally accepted accounting principles, tax
returns and other financial information; inspection of offices and collateral;
notice of certain events and changes; use of proceeds; notice of governmental
orders which may have a material adverse effect, SEC filings and stockholder
communications; maintenance of property and collateral; and payment of Stanford
expenses.
In
addition, Superior has agreed to a number of negative covenants in the loan
agreement, including, among others, covenants not to: create or suffer a
lien or
other encumbrance on any collateral, subject to customary exceptions; incur,
guarantee or otherwise become liable for any indebtedness, subject to customary
exceptions; acquire indebtedness of another person, subject to customary
exceptions and permitted inter-company transactions; issue or acquire any
shares
of its capital stock; pay dividends other than permitted inter-company
transactions or specified quarterly dividends, or directors’ fees; sell or
abandon any collateral except in the ordinary course of business or consolidate
or merge with another entity; enter into affiliate transactions other than
in
the ordinary course of business on fair terms or permitted inter-company
transactions; create or participate in any partnership or joint venture;
engage
in a new line of business; pay principal or interest on subordinate debt
except
as authorized by the credit facility; or make capital expenditures in excess
of
$100,000 per fiscal year.
A
copy of
the amended and restated commercial loan and security agreement is attached
hereto as Exhibit 99.5,
and is
incorporated herein by reference. The foregoing description of the loan
agreement is qualified in its entirety by reference to the full text of the
agreement.
Item
5.02. Compensatory
Arrangements of Certain Officers.
Executive
Employment Agreements.
Upon
the
consummation of the acquisition of Superior, we entered into amended and
restated employment agreements with Dr. L.S. Smith, a director of our board
and
our chairman and chief executive officer, and William H. Oyster, a director
of
our board and our president and chief operating officer, and into a new
employment agreement with John Benson, our chief financial officer.
Employment
Agreement - Smith.
The
revised employment agreement for Dr. Smith amends and restates his existing
employment agreement and sets forth the terms of his employment as chairman
and
chief executive officer. The agreement has an initial 3-year term, and will
be
automatically renewed thereafter for successive one-year terms unless either
party provides at least 120 days notice not to renew. It provides for a signing
bonus of $100,000 upon execution of the agreement and a base annual salary
of at
least $425,000. In addition, it provides for an annual bonus in an amount
not
less than one-half of his annual salary, payable on each January 31 in respect
of the prior calendar year, with half of the payment being contingent upon
our
stock price having increased at least 10% during that calendar year. For
purposes of the 2007 calendar year, the first day will be deemed to be May
30,
2007 and the 10% increase requirement will be prorated accordingly. In addition,
Dr. Smith will be entitled to life insurance of $2,000,000 payable to
beneficiaries of his choice, disability insurance equal to half of his base
salary, medical insurance and other benefits.
Employment
Agreement - Oyster.
The
revised employment agreement for Mr. Oyster amends and restates his existing
employment agreement and sets forth the terms of his employment as president
and
chief operating officer. The agreement has an initial 5-year term, and will
be
automatically renewed thereafter for successive one-year terms unless either
party provides at least 120 days notice not to renew. It provides for a signing
bonus of $50,000 upon execution of the agreement and a base annual salary
of at
least $250,000. In addition, it provides for an annual bonus in an amount
not
less than one-half of his annual salary, payable on each April 30 in respect
of
the prior calendar year, with half of the payment being contingent upon our
EBIT
(earnings before interest and taxes) having increased at least 6% during
that
calendar year. In addition, Mr. Oyster will be entitled to life insurance
of
$1,000,000 payable to beneficiaries of his choice, disability insurance equal
to
half of his base salary, medical insurance and other benefits
Employment
Agreements - Smith and Oyster.
Under
the revised employment agreements of Dr. Smith and Mr. Oyster, if the executive
is terminated due to an illness, injury or other incapacity which prevents
him
from carrying out or performing fully the essential functions of his duties
for
a period of 180 consecutive days, or due to his death, the executive (or
his
legal representative) will be entitled to receive his salary for a period
of one
year following the date of termination and the pro
rata
portion
of this bonus for the prior calendar year. If Dr. Smith would have been
terminated for either reason on January 1, 2007 and his revised employment
agreement had then been in effect, we would have been obligated to pay him
$425,000 in 26 bi-weekly installments of $16,346 each. If Mr. Oyster would
have
been terminated for either reason on January 1, 2007 and his revised employment
agreement had then been in effect, we would have been obligated to pay him
$250,000 in 26 bi-weekly installments of $9,615 each.
In
the
event either executive is terminated for “cause”, he would be entitled to the
pro
rata
share of
the bonus paid to him for the calendar year immediately preceding his
termination. If either executive would have been terminated for “cause” on
January 1, 2007 and his revised employment agreement had then been in effect,
we
would not have been obligated to pay him any additional severance
pay.
In
the
event either executive is terminated other than for “cause”, or if either
executive resigns for “good reason”, he would be entitled to receive a lump sum
payment of (i) his base salary for the remainder of the current year, plus
(ii) the maximum bonus he would have been entitled to receive for the
current year, plus (iii) three years salary based on the salary then in
effect. If Dr. Smith would have been terminated other than for “cause” or
resigned for “good reason” on January 1, 2007 and his revised employment
agreement had then been in effect, we would have been obligated to pay him
a
lump sum payment of $1.91 million. If Mr. Oyster would have been terminated
other than for “cause” or resigned for “good reason” on January 1, 2007 and his
revised employment agreement had then been in effect, we would have been
obligated to pay him a lump sum payment of $1.13 million.
In
the
event either executive resigns other than for “good reason”, he would be
entitled to receive a lump sum payment of (i) his base salary for the remainder
of the current year, plus (ii) a pro
rata
share of
the maximum bonus he would have been entitled to receive for the current
year,
plus (iii) one year salary based on the salary then in effect. If Dr. Smith
would have resigned other than for “good reason” on January 1, 2007 and his
revised employment agreement had then been in effect, we would have been
obligated to pay him a lump sum payment of $850,000. If Mr. Oyster would
have
resigned other than for “good reason” on January 1, 2007 and his revised
employment agreement had then been in effect, we would have been obligated
to
pay him a lump sum payment of $500,000.
In
addition, in the event of the termination of Dr. Smith’s employment, we would be
required to maintain medical health benefits for him and his wife until both
are
covered by a comparable health insurance plan provided by a subsequent employer
or their earlier death. This obligation has an estimated present cost to
us of
$32,100 (assuming payment for a 36-month period). In the event of the
termination of Mr. Oyster’s employment, we would be required to maintain medical
health benefits for him and his wife for a period of 18 months or, if earlier,
until both are covered by a comparable health insurance plan provided by
a
subsequent employer. This obligation has an estimated cost to us of
$17,200.
In
the
event of the termination of either executive’s employment, other than for
termination by the executive for “good reason”, the executive may not for a
period of two years compete with us in the state in which we conduct business
during the employment term, currently Texas.
For
purposes of the two executives’ revised employment agreements:
| · |
“cause”
is defined as (i) conviction of the executive for a felony involving
dishonest acts during the term of the agreement, (ii) any “willful” and
material misapplication by the executive of DGSE funds, or any other
material act of dishonesty committed by him, or (iii) the executive’s
“willful” and material breach of the agreement or “willful” and material
failure to substantially perform his duties thereunder (other than
a
failure resulting from mental or physical illness) after written
demand
for substantial performance is delivered by our board of directors
which
specifically identifies the manner in which the board believes the
executive has not substantially performed his duties and the executive
fails to cure his nonperformance. We are obligated to provide the
executive 30 days written notice setting forth the specific reasons
for
our intention to terminate him for cause and an opportunity for him
to be
heard before our board of directors, and to deliver to the executive
a
notice of termination from our board of directors stating that a
majority
of the board found, in good faith, that the executive had engaged
in the
“willful” and material conduct referred to in the
notice;
|
| · |
an
act or failure to act is “willful” if done, or omitted to be done, by the
executive in bad faith and without reasonable belief that his action
or
omission was in our best interest;
|
| · |
“good
reason” is defined as (i) a change in the executive’s status or positions
with us that, in his reasonable judgment, represents a demotion,
(ii) the
assignment to the executive of any duties or responsibilities that,
in the
executive’s reasonable judgment, are inconsistent with his existing status
or position, (iii) layoff or involuntary termination of the executive’s
employment, except in connection with the termination of the executive’s
employment for “cause” or as a result of his retirement, disability or
death, (iv) a reduction by us in the executive’s base salary, (v) any
“change in control” occurring more than one year after the effective date
of the agreement, (vi) the failure by us to continue in effect any
employee benefit plan in which the executive is participating at
the
effective date of the agreement, other than as a result of the normal
expiration of the plan in accordance with its terms, except to the
extent
that we provide the executive without substantially equivalent benefits,
(vii) the imposition of any requirement that the executive be based
outside the Dallas-Fort Worth metropolitan area, (viii) our failure
to obtain the express assumption of the agreement by any successor
to our
company, or (ix) any violation by us of any agreement (including the
revised employment agreement) between us and the executive;
and
|
| · |
“change
in control” is defined as (A) any person or group becomes the
beneficial owner of shares representing 20% or more of the combined
outstanding voting power of our company, (B) in any 12-month period,
our directors at the beginning of that period cease to constitute
a
majority of our board of directors and a majority of the initial
directors
still in office neither elected all of the new directors nor nominated
them all for election by our stockholders, or (C) a person or group
acquires in any 12-month period gross assets of our company constituting
at least 50% of the fair market value of all our gross
assets.
|
Employment
Agreement - Benson.
The new
employment agreement for Mr. Benson sets forth the terms of his employment
as
chief financial officer. The agreement has an initial 2-year term. It provides
for a base annual salary of $175,000 and an annual bonus to be determined
by our
board of directors. Upon the termination of his employment, Mr. Benson will
be
entitled to, among other things, (1) in case of termination by us during
the initial term other than for cause, base salary for the remainder of the
initial term plus six months; and (2) in case of termination by us after
the initial term other than for cause, three months of annual base
salary.
If
we
terminate Mr. Benson’s employment during the initial 2-year term, he would be
entitled to receive a lump sum payment of (i) his base salary for the
remainder of the initial term, plus (ii) six months salary based on the
salary then in effect. If Mr. Benson would have been terminated by us on
January
1, 2007 and his revised employment agreement had then been in effect, we
would
have been obligated to pay him a lump sum payment of $437,500. If we terminate
Mr. Benson’s employment after the initial 2-year term, he would be entitled to
receive a lump sum payment of three months salary based on the salary then
in
effect.
In
the
event Mr. Benson resigns upon not less than 30 days notice to us, and we
immediately relieve Mr. Benson of his duties, he would be entitled to receive
a
lump sum payment of his salary until the date his resignation was to be
effective. If Mr. Benson would have delivered a resignation notice to us
on
January 1, 2007 indicating his decision to resign on March 1, 2007, his revised
employment agreement had then been in effect, and we immediately relieved
him of
his duties and terminated the employment agreement, we would have been obligated
to pay him a lump sum payment of $29,000.
A
copy of
the executive employment agreements with Dr. Smith and Messrs. Oyster and
Benson
are attached hereto as Exhibits 99.6,
99.7
and
99.8,
respectively, and each agreement is incorporated herein by reference. The
foregoing descriptions of the executive employment agreements are qualified
in
their entirety by reference to the full text of the agreements.
Item
5.03. Amendment
to Articles of Incorporation.
Increase
in Number of Authorized Shares of Common Stock.
On
May
22, 2007, we amended our articles of incorporation to increase the number
of
authorized shares of common stock from 10,000,000 to 30,000,000. A copy of
the
certificate of amendment filed with the Nevada Secretary of State is attached
hereto as Exhibit 3.1, and is incorporated herein by reference.
Item
7.01. Regulation
FD Disclosure.
Press
Release.
On
May
31, 2007, DGSE issued a press release announcing that it had completed the
acquisition of Superior. A copy of the press release is attached as Exhibit
99.9
to this
report.
The
disclosure in this Item 7.01, and the press release being filed as an exhibit,
are being furnished and will not be deemed “filed” for the purposes of
section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liabilities of that section.
Item
8.01. Other
Events.
Special
Meeting of Stockholders.
On
May
22, 2007, at a special meeting of our stockholders, our stockholders approved
each of the following proposals, as described in our joint proxy statement/
prospectus dated April 26, 2007, which forms part of our registration statement
(No. 333-140890) on Form S-4 and was filed with the SEC on April 26,
2007:
Proposal
No. 1
- To
adopt and approve the merger agreement described under Item 2.01 above, and
to
approve the reorganization contemplated thereby, including the issuance of
shares of our common stock to Superior stockholders, and the issuance of
options
and warrants to acquire shares of our common stock, pursuant to the merger
agreement. Of the 4,913,290 shares of our common stock outstanding, 3,275,718
shares (or 66.7%) voted in person or by proxy for this proposal.
Proposal
No. 2
- To
approve an amendment to our articles of incorporation to increase the number
of
authorized shares of our common stock by 20,000,000 shares, to a total of
30,000,000 shares. Of the 4,913,290 shares of our common stock outstanding,
3,267,773 shares (or 66.5%) voted in person or by proxy for this
proposal.
Item
9.01. Financial
Statements and Exhibits.
(a)
Financial
Statements of Business Acquired.
Financial
statements and selected financial information of Superior are included in
our
joint proxy statement/prospectus dated April 26, 2007, which forms part of
our
registration statement (No. 333-140890) on Form S-4 and was filed with the
SEC
on April 26, 2007, which we refer to as our proxy statement, in the sections
entitled “Summary Selected Historical Consolidated Financial Data of Superior”,
“Consolidated Financial Statements for the Six Month Period Ended December
31,
2006 - Superior” and “Consolidated Financial Statements for the Fiscal Year
Ended June 30, 2006 - Superior” beginning on pages 16, F-21 and F-37 of our
proxy statement, respectively, and are incorporated herein by
reference.
(b) Pro
Forma
Financial Information.
Pro
forma
financial information giving effect to a January 1, 2006 acquisition of Superior
and the related transactions is included in our proxy statement in the sections
entitled “Summary Selected Unaudited Pro
Forma Condensed
Combined Financial Information” and “Unaudited Pro
Forma Condensed
Combined Financial Information” beginning on pages 19 and 89 of the proxy
statement, respectively, and are incorporated herein by reference.
(c) Exhibits.
|
Exhibit
No.
|
|
Description
|
|
Comment
|
| |
|
|
|
|
|
3.1
|
|
Certificate
of Amendment to Articles of Incorporation, dated May 22,
2007
|
|
Incorporated
by reference to Exhibit 3.8 of our Form S-8, filed May 29,
2007
|
| |
|
|
|
|
|
99.1
|
|
Registration
Rights Agreement with Stanford International Bank Ltd., dated as
of May
30, 2007
|
|
Incorporated
by reference to Exhibit 2.7 of our Form 8-K, filed January 9,
2007
|
| |
|
|
|
|
|
99.2
|
|
Corporate
Governance Agreement with Dr. L.S. Smith and Stanford International
Bank
Ltd., dated as of May 30, 2007
|
|
Incorporated
by reference to Exhibit 2.8 of our Form 8-K, filed January 9,
2007
|
| |
|
|
|
|
|
99.3
|
|
Escrow
Agreement with American Stock Transfer & Trust Company and Stanford
International Bank Ltd., as stockholder agent, dated as of May
30,
2007
|
|
Filed
herewith
|
| |
|
|
|
|
|
99.4
|
|
Form
of Warrants
|
|
Incorporated
by reference to Exhibit 2.4 of our Form 8-K, filed January 9,
2007
|
| |
|
|
|
|
|
99.5
|
|
Amended
and Restated Commercial Loan and Security Agreement, by and between
Superior Galleries Inc. and Stanford International Bank Ltd., dated
as of
May 30, 2007
|
|
Incorporated
by reference to Exhibit 2.3 of our Form 8-K, filed January 9,
2007
|
| |
|
|
|
|
|
99.6
|
|
Employment
Agreement with L.S. Smith, dated as of May 30, 2007
|
|
Filed
herewith
|
| |
|
|
|
|
|
99.7
|
|
Employment
Agreement with William H. Oyster, dated as of May 30, 2007
|
|
Filed
herewith
|
|
Exhibit
No.
|
|
Description
|
|
Comment
|
| |
|
|
|
|
|
99.8
|
|
Employment
Agreement with John Benson, dated as of May 30, 2007
|
|
Filed
herewith
|
| |
|
|
|
|
|
99.9
|
|
Press
release dated May 31, 2007(1)
|
|
Filed
herewith(1)
|
_________________
| (1) |
This
exhibit is being furnished and will not be deemed “filed” for the purposes
of Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liabilities of that
section.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
Date:
May 31, 2007
|
DGSE
COMPANIES, INC.
By:
/s/ Dr. L.S.
Smith
Dr.
L.S. Smith
Chairman
& Chief Executive Officer
|